With the rising costs of groceries, rent, gasoline, and the US ranking about 8.3% YoY out of a median global scale of 7.9%, if you were not bothered about your financial future earlier on, you should be now.
Take a look at Brian, he kept $500 in his savings account which pays an interest rate of 1.5%, from the first of January. At the end of 2022, provided he didn't spend out of the money saved, he would have a total of $507.5 but with an inflation rate of 3%, Brian would need $515 to purchase what now he has $507.5 for. This means he would need to adjust his standard of living as inflation has reduced his purchasing power.
Is inflation good or bad?
Generally, inflation is considered harmful. But economists including the Federal Open Market Committee (FOMC) maintain that minimal inflation rates are important to drive spending and circulation of credit which is pivotal to a functional economy. Others argue that without inflation, there would be deflation which is equally a terrible thing for the economy.
How inflation affects your net worth
Inflation does many things to different asset classes. For example, inflation affects the money saved in the bank.
In some cases, it is possible to profit from inflation by keeping investments in tangible assets — gold, real estate, etc— that not only hedges your wealth against inflation but gives you competitive interest rates that enable you to keep profiting.
Practical steps to take during inflation
- Get an income booster: In layman's terms, inflation means that more money is chasing fewer goods and services. While that typically affects purchasing power, one way to ‘survive’ inflation is to earn more so you can afford your regular standard of living. You can sell your skills and services on multiple sites, create recurring revenue by publishing a book or become an affiliate marketer.
- Track your net worth: Without knowing what you have, you would lose sight of what you have lost to inflation. By keeping track of your total net worth — commodities, real estate, multiple bank accounts, and stocks, you attain a god-level view of all your finances, and many steps higher in financial planning and management than your next-door neighbor.
- Take advantage of freebies: Are you in total need of a good or service but your budget can’t take care of it? Now is the time to search for alternatives and freebies. It might not be as fantastic as the paid service but it would be able to support you before you
- Check your debt(s): As inflation rates rise, the interest rates on your credit cards make it hard to complete or honor repayments. One way to get around this is to ensure you have a structured and regular repayment plan for your credit card debts. Try paying off your debts weekly as opposed to that monthly lump sum. That way, the daily interest accumulation on your credit card is reduced significantly. Inflation also makes it easier on debtors, who repay their loans with money that is less valuable than the money they borrowed. Another thing you can do is to call your credit card companies and request they lower your interest, you would be surprised by other incentives available that could help your finances.
- Do a subscription audit: Cut unnecessary costs by spending on only what is necessary. Make do with subscriptions that are essential to your net worth and uplift your spirits while canceling those that are not important in your day-to-day or your financial health.
Rising inflation rates are not synonymous with the U.S. alone. According to data indicators for inflation & consumer prices, the world's economy is on a steady climb to inflation. The knowledge of inflation, how it affects commodities, and how to survive it, would help maximize your income and beat inflation to its game.